Just in case there’s not enough to worry about right now, with the U.S. eight days from possibly defaulting on its debt, a new report reminds us that there’s plenty to be anxious about in the future, too.
The 2013 edition of the Melbourne Mercer Global Pension Index (PDF), a ranking of national retirement systems around the world, has the U.S. ranked 11th, down two slots from last year. The bottom line: Americans don’t save enough, our policies are inadequate to help poor and middle-income earners, there are too many loopholes that reduce savings further, and we’re unprepared for how long we’re going to live in retirement.
Germany and Singapore were judged to have surpassed the U.S., which received a “C” grade overall and lost points in the report’s “adequacy” and “sustainability” subsections. Denmark received the only “A” grade in the report, with the Netherlands just behind.
Mercer’s researchers suggested five ways for the U.S. system to improve, including the introduction of mandatory retirement savings. In May, I wrote about Australia’s compulsory “Superannuation” program, which requires 9 percent of employee paychecks to be diverted into old-age accounts. (The level will increase to 12 percent by 2020.) Since it began just over 20 years ago, the system has amassed $1.52 trillion in assets, with more than nine in 10 workers contributing something.
That dwarfs the participation rate in the U.S., where the Employee Benefit Research Institute says just 40 percent of Americans who worked last year saved in an employer plan. Larry Fink, chief executive officer of BlackRock, the world’s largest asset manager, has become a vocal proponent of forcing U.S. workers to save for retirement.
The Mercer report also faults the U.S. for “leakage”—allowing citizens to borrow from their savings before retirement age, often with steep penalties attached—and rules that allow new retirees to take their savings in one lump sum, instead of treating their assets as an income stream.